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Hard Times & Home Cooked Meals: Restaurant Industry Is Starving for Customers

As the economy worsens, Americans are eating out less, and more at home, to save money. With less foot traffic, businesses are seeing their sales and profits plummet -- and their expenses rise.

Joseph and Victoria Hurley are the kind of customers that keep restaurateurs up at night.

The Hurleys, parents of two young boys, have restructured their lives. The couple -- she's a marketing consultant and he's a much-traveled computer troubleshooter -- dumped their Jeep Grand Cherokee for a Lexus hybrid SUV that gets twice the mileage. Dinners out at places such as the Cheesecake Factory and the Daily Grill are rare treats instead of a weekly habit. ΒΆ "We're worried about the economy, and we feel like it's more prudent to eat at home rather than go out and blow a lot of money on a meal," Victoria Hurley said. The steady drumbeat of bad economic news "feels like kind of a tidal wave, and the rest of us are trying to bail out with spoons." Tough economic times are giving restaurant owners indigestion.

Calabasas-based Cheesecake Factory Inc. on Thursday reported a 36% drop in third-quarter earnings, to $11.8 million from $18.5 million, because of higher costs and a 4.8% decline in sales at restaurants open at least a year. Total revenue rose 8% to $405 million.

Cheesecake Factory chief David Overton told analysts that the restaurant industry is "in the midst of unprecedented times. . . . Pressures are further squeezing restaurant operators' margins, and like many others in casual dining, our earnings were impacted by spikes in commodity and energy costs."

 Cheesecake Factory, Woodland Hills-based Grill Concepts Inc. and other operators are witnessing dramatic changes in consumer behavior: As the economy worsens, Americans are eating at home to save money.

NPD Group, a market research company, said in its annual "Eating Patterns in America" report that restaurant meals now cost on average about three times what it takes to make a similar meal at home. When people do eat out, they are going to quick-serve and fast-food restaurants more often, according to the NPD report released last week.

Restaurants are trying everything they can to lure customers. The Islands Restaurants chain, for instance, is giving a free side order of French fries with every burger or sandwich. That used to cost $1.49 extra -- plus tax and tip at the Carlsbad-based chain.

The sound of consumers' wallets snapping shut has become so loud that some experts consider it the biggest threat to the U.S. economy.

"There has been so much of a focus on Wall Street and the credit problem, but the real source of the problem in the fourth quarter is going to be consumer spending, and restaurants are one of the canaries in this coal mine," said Edward E. Leamer, director of the UCLA Anderson Forecast. "If the restaurants are open and no one shows, if businesses do not get revenue, people lose their jobs and cut back even more."

Full Story: http://www.latimes.com/business/la-fi-dining24-2008oct24,0,2754698.story

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